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Exit Spirals in Coupled Networked Markets

Author

Listed:
  • Christoph Aymanns

    (QuantCo, Inc., Cambridge, Massachusetts 02139)

  • Co-Pierre Georg

    (EDHEC Business School, 06200 Nice, France)

  • Benjamin Golub

    (Northwestern University, Evanston, Illinois 60208)

Abstract

Strategic agents choose whether to be active in networked markets. The value of being active depends on the activity choices of specific counterparties. Several markets are coupled when agents’ participation decisions are complements across markets. We model the problem of an analyst assessing the robustness of coupled networked markets during a crisis—an exogenous negative payoff shock—based only on partial information about the network structure. We give conditions under which exit spirals emerge—abrupt collapses of activity following shocks. Market coupling is a pervasive cause of fragility, creating exit spirals even between networks that are individually robust. The robustness of a coupled network system can be improved if one of two markets is replaced by a centralized one or if links become more correlated across markets.

Suggested Citation

  • Christoph Aymanns & Co-Pierre Georg & Benjamin Golub, 2023. "Exit Spirals in Coupled Networked Markets," Operations Research, INFORMS, vol. 71(5), pages 1472-1497, September.
    • Handle: RePEc:inm:oropre:v:71:y:2023:i:5:p:1472-1497
    DOI: 10.1287/opre.2023.2439
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